Potpourri
==> Pete Boettke has a nice post on Ronald Coase. BTW, Pete alludes to an episode where William Baumol “got confused” on a basic economic principle. Does anyone have the details?
==> Jonathan Catalan digs up an interesting quotation from Keynes about mathematical economics.
==> This investment firm (I have no relationship with them, at least not yet…) explicitly endorses Austrian economics.
==> The voracious von Pepe follows several blogs, and alerts me to John Taylor who says this about the Jackson Hole conference:
The first paper was by Bob Hall, my colleague at Stanford. It argued that neither quantitative easing nor forward guidance was effective, or as he put it, “Both quantitative easing and forward guidance, as implemented by the Fed, are obviously weak instruments.” He went even further saying, in reference to the large increase in reserves to finance quantitative easing, that “An expansion of reserves contracts the economy,” in the current situation when interest is paid on reserves. He is skeptical of forward guidance because he does not think promising to deviate from a policy rule with extra low interest rates in the future is credible. It’s “hard to accomplish.”
Bob he also warned that nominal GDP targeting had serious problems, referring to his research of 20 years ago with Greg Mankiw. And instead of raising the target for inflation, going forward he argued that central bankers should focus on requiring more capital at banks and more rigorous stress testing.
==> I’m way late on this, but here’s a HuffPo piece praising Ludwig von Mises.
==> John Tamny reviews Mark Spitznagel’s forthcoming book, The Dao of Capital: Austrian Investing in a Distorted World. Note: I did a lot of consulting for Spitznagel’s book. Mark is a serious student of Austrian economics. We literally spent hours arguing/discussing Bohm-Bawerk. I’m not saying every Austrian will love the book, and I don’t even agree with everything in it, but by no means can you dismiss Spitznagel as just throwing on the label.
==> Here’s an interesting blog post from climate scientists Pat Michaels and Chip Knappenberger on the forthcoming IPCC report, and how the editors are dealing with the awkward trends in the published literature.
==> I think part of the reason Austrians are so skeptical of economists using regression analyses etc. is that the conclusions are so often interventionist. In order to get a full and balanced perspective, listen to Russ Roberts’ great interview with Lee Ohanian. Ohanian is a UCLA economist with a very supply-side, anti-Keynesian perspective on both the Great Depression and current recession. To hear him talk about these things in neoclassical terms will be a good way to refine your views on mainstream vs. Austrian methods. If nothing else, it’s good to hear a solid mainstream guy confidently say the opposite of the Krugman line, using the same type of techniques, to avoid giving outsiders the impression that if you try to do something in a mathematical model that gets published in a “prestigious” journal, then Krugman ends up being right. That is exactly the impression Krugman et al. want to give to the general public in methodological debates, so it’s nice to find examples of no-nonsense guys like Ohanian illustrating the opposite.
“I think part of the reason Austrians are so skeptical of economists using regression analyses etc. is that the conclusions are so often interventionist.”
Hmm: this could be used by your critics: “See, Murphy admits that Austrians denigrate empirical work because the facts don’t support their ideological position!”
Maybe, but it goes the other way: “See, interventionist economists admit that they denigrate Austrian work because the facts (meaning Austrian derived facts) don’t support their ideological position!”
Then one day we all realize we’re all being ideologically motivated.
Is there any reasonable person who would really go from not wanting to point guns at innocent people, to pointing guns at and ready to shoot innocent people, based on nothing but a number that pops out of a regression analysis?
Even you’re not that sociopathic Gene.
“Then one day we all realize we’re all being ideologically motivated.”
Projection.
“Is there any reasonable person who would really go from not wanting to point guns at innocent people, to pointing guns at and ready to shoot innocent people, based on nothing but a number that pops out of a regression analysis”
Yes, you are locked so hard into your ideological position that nothing will budge you. I understand: for you, it is not just a policy position: you have defined your identity around these positions. If you stopped being an anarchist, you would not know WHO you are.
“Projection.”
On the contrary, Gene. Everyone is motivated by ideology to some degree or another.
Projection.
Ideologues can never believe that everyone isn’t like them.
I suppose child molesters think similarly.
I don’t know if I would have taken the “everyone is ideologically motivated” tack, even if it may be true.
Economics is a positive science, so one must stay within that realm in order to correctly respond to Gene’s comment. I would say that Austrians recognize that the free market is that in which is free from intervention, and that it is the free market in which we are using for comparison of certain interventions in the market to reveal the failures of certain ends being achieved. That these interventions do cause certain failures in market operation, then it goes to show that the markets proper functioning is predicated upon non-intervention in market activity. Intervention is non-market activity that distorts the proper functioning of the market, thus if actors wish to more successfully achieve their ends within the market (in a universalizeable way), then they must refrain from intervening in voluntary market activity.
Personally, the reason I denegrate empirical work is because I don’t trust empirical economists to respect my life and property. More times than not, their ideological motivations are to disrespect them, and they use the incredible leeway and flexibility allowed in mathematical modelling to produce the output they wanted all along for ideological reasons. We have seen this last occur so many times that even empiricists have to admit it is a problem.
The reason I denegrate empiricism is because it presupposes constancy in human action, despite the fact that there are no constants.
Thank you for the link.
The Baumol article that Coase is referring to is “On Taxation and the Control of Externalities.”
Oh, I mistook details for a cite. This is Coase’s explanation,
“Baumol, who discussed my views at length in his article, said that his man purpose was “to show that, taken on its own grounds, the conclusions of the Pigovian tradition are, in fact, impeccable. He argues that, in the case of the smoke nuisance, an “appropriately chosen tax, levied only on the factory (without payment of compensation to local residents) is precisely what is needed for optimal resource allocation under pure competition.” He argued further that a double tax (such as I suggested) is unnecessary and claimed that my belief that a taxing system could result in too many people locating near the factory comes from confusing a pecuniary externality with a technological externality. An examination of my arithmetic earlier in this section will, however, demonstrate that my conclusions are correct. Why do Baumol and I reach different answers? The reason is that in my article I assumed that the tax which is to be imposed is equal to the damaged caused, whereas Baumol’s tax is not. I would not deny that Baumol’s taxing system is conceivable and that if put into practice it would have the results he describes. My objection, which I stated in my article, is that it could not be put into practice. I thought I had made this clear. This is what I said in “The Problem of Social Cost”: “A tax system which was confined to a tax on the producer for damage caused would tend to lead to unduly high costs being incurred for the prevention of damage. Of course, this could be avoided if it it were possible to base the tax, not on the damage caused, but on the fall in the value of production (in its widest sense) resulting from the emission of smoke. But to do so would require a detailed knowledge of individual preferences, and I am unable to imagine how the data needed for such a taxation system could be assembled.””
He goes on to provide an example, where the government levies a tax a smoke producing factory. But, the affected households, who aren’t necessarily themselves compensated by the tax scheme, have an incentive to protect themselves from damage. So, for an optimal tax to be levied, the government has to have data on the opportunity cost of different means of reducing damages.
Standard libertarian talking point on taxation:
“If you tax something you get less of it.”
Since they get less smoke, the affected household is compensated by the tax scheme.
“Since they get less smoke, the affected household is compensated by the tax scheme.”
If I’m punching you in the face, and I switch to slapping you instead, would that be compensating? Or just slightly less damaging a violation of your rights?
“appropriately chosen tax, levied only on the factory (without payment of compensation to local residents) is precisely what is needed for optimal resource allocation under pure competition”
On the contrary, direct compensation to demonstrated victims is what is necessary. Taxing the factory will only result in less opportunity for the factory’s technology and procedures to advance (perhaps that tax prevents capital investment in a more productive and less dirty method of production) and leads to government having more money to waste on inefficient or undesired projects.
Oh oh……….one of the partners of the investment firm (Ronald-Peter Stöferle) quotes Abe Lincoln in his profile.
His favourite quote is ‘Whatever you are, be a good one’ (Abraham Lincoln)
Guess he has not gotten the memo on Lincoln.
If it’s really true that a lot of people reject empirical analysis because of the political orientation of the conclusions that come out of it (setting aside whether that’s even a true assessment in the slightest), that does not speak well for those people.
What an awful criterion.
It doesn’t even make sense to me. If you take all the people that opine on the economy but do not use math or regressions, I would suspect the political orientation of that literature is even MORE interventionist. The wax-poetic-on-economic-matters crowd seems to me to be predominantly leftist.
“If it’s really true that a lot of people reject empirical analysis because of the political orientation of the conclusions that come out of it (setting aside whether that’s even a true assessment in the slightest), that does not speak well for those people. ”
I’d agree. I reject empirical analysis because it is both unnecessary (logical derivation is a much better method in economics) and necessarily makes many false assumptions regarding human action and behavior to get the equations to work.
Ohanian is always interesting. I fully endorse the rest of that bullet point. I just can’t get over how awful a criterion it is. Hopefully you’re being a little pessimistic here.